Dollar slide continues on Trump political woes, cautious Fed minutes

NEW YORK (Reuters) - The U.S. dollar continued its slide on Wednesday as political pressure on President Donald Trump increased, and dipped briefly near session lows after the release of Federal Reserve meeting minutes which included cautious comments on trade.

Bank notes of different currencies, including Euro, U.S. Dollar, Turkish Lira or Brazilian Reais, are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. REUTERS/Kai Pfaffenbach/Illustration

Trump suffered twin setbacks on Tuesday with two former advisers facing possible prison sentences - and one of them saying Trump told him to commit a crime - possibly hurting his Republican Party’s November midterm election prospects and widening a criminal investigation that has overshadowed his presidency. This dampened investor appetite for riskier investments across asset classes.

Some analysts said renewed U.S. political uncertainty could keep the dollar under pressure, although the immediate currency impact was modest.

The dollar index, which fell sharply this week after Trump criticized the U.S. Federal Reserve’s interest-rate increases, was down 0.3 percent to a daily low of 94.93.

“Political pressure on Trump is increasing ... reducing the likelihood that he will have the political capital to continue driving fiscal stimulus in the U.S. economy. This suggests to many market participants that the era of U.S. outperformance is likely to end,” said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto.

The dollar also dipped briefly, before recovering, on the release of minutes from the Fed’s last meeting. U.S. central bankers discussed raising interest rates soon to counter excessive economic strength but also examined how global trade disputes could batter businesses and households.

“The FX market did react negatively, with the dollar falling, to cautious comments on trade and emerging markets, as the Fed flagged the downside risks. Perhaps the market is extrapolating that it could mean a pause in tightening,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

But the dollar has been on the defensive recently, said Osborne, and the market is taking any excuse to add to shorts.

Easing fears about a currency crisis in Turkey and the Italian budget, as well as short-covering, sent the euro up for the sixth consecutive day. The euro gained 0.5 percent to a session high of $1.162.

That marked a nearly three-cent rebound for the single currency from 14-month lows hit last week on fears of contagion from the Turkish currency crisis and renewed worries about Italian political turbulence.

The U.S.-China trade talks were set to begin later on Wednesday in Washington. Expectations were generally low given they do not involve high-level officials.

The dollar strengthened mostly against the Japanese yen to 110.53 yen. It had weakened to 109.76 overnight, its lowest since late June.